LegiStorm

Summary:

According to the U.S. Department of Agriculture (USDA), the United States is expected to be the fourth largest producer and third largest exporter of peanuts in the world in 2016. In addition to its prominent role in international markets, U.S. peanut production and marketing is an important activity in several states located in the southeastern and southwestern United States. The U.S. peanut crop has been eligible for certain federal farm support programs since the 1930s—initially under a quota system and, since 2002, under the income support programs available for other major program crops like corn, wheat, soybeans, and rice. Today, under the 2014 farm bill (Agricultural Act of 2014, P.L. 113-79), the major income support programs are marketing loan benefits and either the price loss coverage (PLC) or agriculture risk coverage (ARC) program (as determined by a one-time producer choice). For peanuts, almost all producers (99.7%) chose PLC because they expected it to provide higher payments and greater risk protection than would be available under ARC. Marketing loan benefits are available immediately after harvest and are coupled directly to planting and production. In contrast, PLC and ARC payments are made to 85% of historical base acres and thus decoupled from producer crop choices. Also, PLC and ARC payments are not available until nearly a full year after harvest—October 1 following the end of the marketing year when full information on farm prices is available. The 2014 farm bill also created “generic” base acres—former cotton base acres from the 2008 farm bill. Generic base is added to a producer’s total base for potential payments, but only if a covered crop is planted on the generic base. In other words, PLC payments on generic base acres are coupled to actual plantings (although payments remain subject to the 85% factor applied to eligible acres). Under current peanut program provisions, peanuts have a separate program payment limit—a consequence of the quota buyout (P.L. 107-171; §1603). As a result of this feature, a farmer that grows multiple program crops including peanuts has in effect two different program payment limits: the first payment limit (of $125,000) is for an aggregation of program payments made to all program crops other than peanuts; and the second (also of $125,000) is for program payments made exclusively to peanuts. Thus, under an extreme scenario involving large payments for both peanuts and other program crops, this could potentially double a farmer’s payment limits. Farm policy economists have noted that peanuts have a statutory reference price that is set disproportionately above historical market prices, particularly when compared to other major program crops. Some contend that this potential advantage favors peanut production on generic base acres. However, the extent to which this scenario might play out is unclear, and both agronomic and market circumstances suggest that it might be somewhat limited. USDA estimates of peanut program outlays for FY2015 were modest at $74 million. However, most analysts expect substantial peanut program outlays in the future under both the PLC program and the marketing assistance loan program, as well as from storage and handling costs associated with peanut loan forfeitures. In February 2016, USDA projected annual average peanut program costs at $800 million for FY2016-FY2019. However, record U.S. peanut exports during the 2015/16 crop year, coupled with record domestic usage, have substantially reduced domestic peanut stocks and have likely dampened the outlook for program costs in FY2016. Going forward (FY2017-FY2019), outlays will depend on producer behavior and market conditions. As a point of reference, the annual market value of U.S. peanut production over the past 30 years has been primarily in the range of $0.8 billion to $1.2 billion.